“In the last Autumn Statement before the general election, it would be traditional to expect some tax giveaways. But with one fiscal event still to come - the March 2015 Budget - and public finances continuing to disappoint, the Chancellor has very limited room for manoeuvre. Any giveaways would need to be funded from elsewhere and, even then, the Chancellor may choose to keep his powder dry until the Budget.
• Revenue raisers, tackling tax avoidance: “The Chancellor may look to anti avoidance measures as one possible source of revenue. Although, given that the UK has already well-established defences, large revenues from this may be difficult to estimate and defend to the Office for Budget Responsibility. We are expecting to see legislation in relation to a new anti-avoidance rule around the taxation of loan relationships and derivatives. It’s also worth listening out for anti-avoidance measures on intellectual property.
“We also expect HM Treasury to announce a consultation on the implementation of hybrid mismatch rules, which follows on from a report published by the OECD in September as part of its Base Erosion and Profit Shifting (BEPS) initiative.”
• Supporting the UK’s manufacturers: “If the Chancellor is able to find a way to ‘balance the books’, any tax incentives are likely to focus on measures that boost UK growth and competitiveness. And we think one of his biggest opportunities lies with manufacturers.
“We are seeing the beginnings of a re-shoring revolution with rising costs in countries such as China causing many companies to consider relocating their production lines closer to the home markets. A targeted toolkit of tax measures would help ensure that the UK receives its share of the investment, generating real jobs and growth for the economy. While it’s unlikely to be a revenue neutral package, setting out a roadmap and ambitions for the future would send a powerful and impactful message to business.”
• Stimulating UK infrastructure projects: “The Chancellor’s Budget speech in March sought to stimulate investment in the UK’s transport and energy sectors by doubling the Annual Investment Allowance to £500,000. He also extended the life of this enhanced allowance for another year, until 31 December 2015. However with this deadline now looming, there could be a strong case for the Chancellor to continue his support.”
• Business rates: “The Government is already undertaking a review of the administration of Business Rates. But mounting political pressure and calls from retailers and manufacturers could result in a more wholesale reform of this outdated system. This is particularly needed when you consider that this tax now raises almost 2/3 of the amount of corporation tax.”
• Patent box: “The Patent Box regime has been under review by Brussels and the G20 / OECD, with ongoing international negotiations over the amount of tax relief that can be claimed on development expenditure. The UK and German Governments reached an agreement on a proposal in November and we expect to hear further details when the Chancellor makes his speech on the 3rd December.”
• Tax simplification: “HMRC have also indicated that the Autumn Statement may include a response to recent recommendations from the Office of Tax Simplification (OTS). The OTS was originally tasked by the Government to review of the competitiveness of the UK tax administration, but their report extended well beyond this brief and called for a number of fundamental policy changes. These looked at how tax and accounting profits could be aligned more closely and whether corporate capital gains and the distinction between trading and investment income could be abolished. Whilst the Chancellor is unlikely to be attracted to many of these, we can expect to hear his reasons why and where he wants to act.”
• Direct recovery of debt: “Banks face the prospect of collecting HMRC’s debts and having to deal with associated customer care issues. Naturally, they are keen to see the actual details of the proposed legislation, particularly around how the rules are anticipated to operate in practice, and what the timeframe is for their introduction.
“To date, the proposals have proved to be very controversial. They are not a proportionate response to the problem identified. It is essential to ensure that any legislation in this area is workable in practice and does not place an undue administrative burden on banks.”
Personal tax predictions: Attracting the rainmakers
“Given the tight public finances and the need to buoy the electorate, we expect to see promises not pounds in the Autumn Statement. The key tax thresholds could be raised in the future rather than coming into effect immediately. Tax cuts also seem unlikely. So what is likely to be announced when the Chancellor delivers his speech?”
• Personal allowance: “The personal income tax allowance is already in line with promised targets and set to rise to £10,500 on the 6 April 2015. So we predict ‘no change’ in the Autumn Statement, but the lack of immediate action may be counterbalanced by a promise to raise the allowance to £12,500 by the end of the next Parliament. The Chancellor could potentially increase the personal allowance to £11,000 in April 2015 with subsequent rises planned until 2017/18. Although this would be a costly measure and savings would need to be found elsewhere.”
• Inheritance Tax Relief: “More and more homes are creeping into the inheritance tax (IHT) net. The number of estates paying IHT is predicted to double by 2018. So the Chancellor may promise to comfort home owners by increasing the inheritance tax ‘nil rate band’. At present, a married couple or civil partners enjoy an exemption of £650,000 between them. This could be increased to £1m.
“We also expect the Chancellor to confirm his intention to take emergency service personnel, who pass away in the line of duty, outside the scope of inheritance tax altogether and provide details about how the exemption will operate. A consultation changing the inheritance tax paid by trustees also concluded earlier this year with significant changes to the way in which trustees are taxed from June 2014. We expect further details on this change to be included in the Draft Finance Bill.”
• Social investment tax relief: “Listen out for further details about an extension of the social investment tax relief. This is designed to encourage wealthy philanthropic investors to invest in their local communities, and may include the introduction of social investment bonds.”
• Entrepreneurs Relief: “Much has been made by the Public Accounts Committee (PAC) of the burgeoning cost of tax relief and, in particular, the entrepreneurs allowance. Notwithstanding the restrictions of the PAC’s role, the Chancellor may feel that he needs to consider the merits of their arguments and whether a refinement of the entrepreneur’s relief is needed.”
“Last week HMRC released further details of how, from April 2015, the Chancellor will tax the UK homes of non-residents. This is going to be another complex piece of legislation for many tax payers to digest. If we could have one personal tax present from the Chancellor this Christmas, it would be no more new taxes and no more complexity.”
Concluding Cathy Taylor says: “Over this and the last parliament, the UK tax regime has undergone major reform, with the introduction of dividend exemption, the corporate tax roadmap, reductions to the headline rate of corporate tax, Controlled Foreign Companies reforms, and the patent box. It’s turned the tax system into an asset once again and we now seem close to achieving its ambitions of creating one of the most competitive corporate tax regimes in the G20.
“The hard work has largely been done and many of these changes now need time to ‘bed in’. Combined with the little cash in the coffers, it seems likely that any tax tinkering announced in the Autumn Statement will be small scale, targeted, and largely revenue neutral. Don’t expect to see many rabbits pulled out of the hat.”
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